Newsvendor Analysis of Supply Chains: Issues of Product Design and Channel Conflicts

118 p.Thesis (Ph.D.)--University of Illinois at Urbana-Champaign, 2007.This dissertation consists of three essays, each of which models a specific business scenario characterized by a two-party supply chain structure. As a set, they nestle neatly into the literature defined broadly as the study of supply chain management within a newsvendor framework. We first study a price-setting newsvendor's product design problem within the context of a centralized supply chain. We find that as a general rule, the newsvendor should lower quality facing demand uncertainty. In contrast, the change of price decision depends on how randomness affects demand. We then extend the analysis into a decentralized manufacturer-retailer supply chain characterized by a two stage decision model: the manufacturer designs a product by choosing its quality level and offers it for sale to the retailer by announcing its wholesale price, followed by the retailer choosing a purchase quantity and a selling price in anticipation of random demand. We explore the manufacturer's optimal product design decision and evaluate it from the retailer's perspective. We find that the manufacturer over provides quality, and as a result, the wholesale price and retail price are all higher than the retailer would prefer. The third essay studies the problem of inventory allocation in a multi-channel structure in which a manufacturer is both the supplier to, and competitor of, an independent retailer. We identify the existence of an equilibrium in which the manufacturer does not necessarily exhaust its capacity but still denies retailer's order request. Our results also indicate that a mild capacity may make both parties better off as compared with the case of infinite capacity. A reverse revenue sharing contract is developed to coordinate the decentralized supply chain.U of I OnlyRestricted to the U of I community idenfinitely during batch ingest of legacy ETD